Correlation Between Kinetics Small and Kinetics Paradigm

Can any of the company-specific risk be diversified away by investing in both Kinetics Small and Kinetics Paradigm at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Kinetics Small and Kinetics Paradigm into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kinetics Small Cap and Kinetics Paradigm Fund, you can compare the effects of market volatilities on Kinetics Small and Kinetics Paradigm and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Kinetics Small with a short position of Kinetics Paradigm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinetics Small and Kinetics Paradigm.

Diversification Opportunities for Kinetics Small and Kinetics Paradigm

1.0

Correlation Coefficient

Kinetics Small  Kinetics Paradigm

No risk reduction

The 3 months correlation between Kinetics and Kinetics is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Kinetics Paradigm Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Paradigm and Kinetics Small is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Kinetics Small Cap are associated (or correlated) with Kinetics Paradigm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Paradigm has no effect on the direction of Kinetics Small i.e., Kinetics Small and Kinetics Paradigm go up and down completely randomly.

Pair Corralation between Kinetics Small and Kinetics Paradigm

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 0.79 times more return on investment than Kinetics Paradigm. However, Kinetics Small Cap is 1.27 times less risky than Kinetics Paradigm. It trades about -0.13 of its potential returns per unit of risk. Kinetics Paradigm Fund is currently generating about -0.15 per unit of risk. If you would invest  19,081  in Kinetics Small Cap on May 1, 2025 and sell it today you would lose (1,942) from holding Kinetics Small Cap or give up 10.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Kinetics Small Cap  vs.  Kinetics Paradigm Fund

Kinetics Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinetics Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Kinetics Paradigm

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinetics Paradigm Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Kinetics Small and Kinetics Paradigm

The main advantage of trading using opposite Kinetics Small and Kinetics Paradigm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinetics Small position performs unexpectedly, Kinetics Paradigm can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Kinetics Paradigm will offset losses from the drop in Kinetics Paradigm's long position.

The idea behind Kinetics Small Cap and Kinetics Paradigm Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.